Thursday, March 22, 2012

Time Is Right For Natural Gas Vehicles

By Mitchell Schnurman High gasoline prices are sending a strong signal to the market: The time is right for natural gas in cars and trucks. The question is whether that message is enough. Last week, the Senate rejected tax breaks to encourage production of natural gas vehicles and fueling stations, choosing to let free markets alone dictate how this transportation sector develops. Activity has accelerated recently, coinciding nicely with rising prices at the pump. Detroit's Big Three automakers unveiled trucks to run on natural gas, and Chesapeake Energy struck deals with General Electric and 3M to supply key products to the emerging business. That's happening without government help, so why jump in and mess with the invisible hand? Because the segment remains tiny and momentum can stall. In 1993, T. Boone Pickens started pushing natural gas as a transportation fuel, and a few fleets and government agencies got on board. At the time, Pickens predicted that 20 million natural gas vehicles would be on the road by 2010, a slogan that's still on some coasters in local offices. The vehicle count only reached about 110,000, a thin fraction of the U.S. fleet of 250 million. Many fueling stations that opened in the '90s practically dried up. Blame it on falling oil prices in the 1990s, which ended the urgency for the costly conversion to natural gas. The resolve to diversify that energy supply withered, too, and that's one of the downsides of letting the market decide on its own. The United States has more natural gas and more cars and trucks than anywhere in the world. But 16 countries have more natural gas vehicles, including Argentina, Brazil and Italy, whose governments pushed the idea hard in recent years. We prefer a lighter regulatory hand. But as Pickens wrote in an op-ed before the Senate vote: "You have your head buried in the sand if you think energy globally is a free market." OPEC is a cartel and oil giant China is far from a free-market economy, said Pickens, who's leading the natural gas charge again. Big Oil has its share of tax incentives, too, so there's reason to promote a nascent domestic business with a big payoff possibility. But the conservative Heritage Foundation said the federal government couldn't afford to throw money around, especially up to $5 billion on an industry that doesn't need any help. The Wall Street Journal weighed in with a blistering editorial titled "Boone-Doggle." Natural gas already has a big cost advantage, the Journal wrote, and "there were no subsidies for Henry Ford to build the Model T, and no tax incentives for gas stations in every town in America." The Senate vote was 51-47 in favor of the amendment to the transportation bill, including five Republicans. But that was short of the 60-vote margin needed for passage. Both Texas senators voted against it, even though Texas generated a quarter of the country's natural gas production last year, easily the most of any state. And much occurs in North Texas' Barnett Shale, whose success in fracking has inspired new drilling worldwide. Thanks to that technology, homegrown natural gas has become abundant and cheap. Natural gas vehicles would save $1 to $1.50 a gallon at today's fuel costs and spew less pollution. A big impact could come from just the country's 8 million heavy-duty trucks, and much of the conversion effort is focused on that. They burn about 20,000 gallons of fuel a year, so it takes less time to recoup the upfront costs. Those expenses are already coming down, as engine production grows. A Class 8 truck, which includes tractors and garbage trucks, costs about $40,000 more to outfit for natural gas, compared with a diesel model. Three years ago, the premium was at least $60,000, an industry expert said. A tax credit would cover that differential and spur more sales and lower prices, according to supporters. Other credits would encourage more fueling stations, including a national network so long-haul truckers could cross the country. There has to be enough infrastructure or customers won't buy natural gas vehicles, Andrew Littlefair, CEO of Clean Energy Fuels, told a House committee in September. A fee at the pump, paid by natural gas vehicles, would cover the costs of the tax breaks. Pickens compared the fee to a toll road, supported only by its users. The proposed fee would start at 2.5 cents a gallon in 2014 and rise to 12.5 cents a gallon in 2020. The credits would be available for five years and the payback fees would last for 10, although opponents questioned whether Washington would ever end the arrangement. Certainly, the industry plans to push the proposal again this year. It's making a nuanced argument: Natural gas vehicles are showing enough success to be worthy of federal support, but imagine how a federal boost could help. The change among heavy trucks is going to happen in 10 to 15 years, Littlefair said. With federal tax breaks, he said, it would happen in five. And if the entire heavy truck fleet ran on liquefied natural gas, OPEC oil imports would be cut in half. Consider that the next time politicians say we can't do anything about rising gasoline prices. Mitchell Schnurman's column appears Sundays and Thursdays, 817-390-7821Twitter: @mitchschnurman Read more here:

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